Licenses and Leases
- Elliot Tierney
- Aug 15, 2023
- 8 min read
Ownership and Exclusion:
Owners are free and entitled to exclude others from the use and enjoyment of their land. Conversely, non-owners owe owners a duty to not enter their land. If they do, they commit the tort of trespass.
Access and Consent:
An owner can consent to another having access to their land.
EG: rental of a house for a monthly charge.
Licenses:
A licence is a permission to access or use someone else’s land.
Licensor: the person granting the licence.
Licensee: the person to whom the licence is granted.
A licence is merely a right in personam. [1] It is not an interest in land, but a right over land.
Bare Licence:
A bare licence is a gratuitous permission to enter another’s land without being considered a trespasser, without anything being given in return.
EG: inviting someone over for dinner.
Revoking the Licence:
The licensor has the right to revoke the license at any time.
If they do this before the licensee enters the land, they cannot enter. If they do this after the licensee has entered the land, they must leave in a reasonable time. This is the principle of reasonable notice.
Third Parties:
Where the licensor grants a licence to a licensee but then transfers ownership to another, the new owner can revoke the licence at any time.
Contractual Licence:
A contractual licence is a permission granted in exchange for some consideration (typically money).
EG: rental of a house for a monthly charge.
EG: buying a cinema ticket. [2]
Revoking the Licence:
As with contract law, the licensor is obligated to give effect to the contract. Any attempt to revoke the licence, regardless of whether it was before or after entry, is a breach of contract.
The default position to remedy this breach is to award specific performance or an injunction to uphold the agreement. [3]
Where it is impossible to honour the licence, the court may award damages.
Third Parties:
Originally, third parties wouldn’t be bound by contractual licences. [4] They were seen as merely rights in personam.
The Court of Appeal (unsuccessfully) attempted to change this so that where the licensor grants a licence to a licensee but then transfers ownership to another, the new owner likely bound by the licence also. [5]
Justification: [6]
If A sought to revoke the licence granted to B, the court would order specific performance of the contract, meaning that B could demand access to the land.
Since B could demand entry to the land, B must have a proprietary right in the land.
Proprietary rights bind not only the original grantor but also third parties, such as C.
Problems:
The ruling was inconsistent with binding precedent (CA contradicting HL), so cannot be followed.
It is wrong to say that B has a proprietary right in the land by virtue of the contract being enforced by specific performance.
The third party wasn’t provided consideration for the licence.
The orthodox position was restored: contractual licenses only bind the parties to the contract, not third parties. [7]
If the new owner undertakes to give effect to the licensee’s rights under the contract, the licensee will have a claim against the new owner if they then deny their access to the land. [8] This creates a new binding contract between the licensee and the new owner under equity; the buyer is not taking on the previous contractual licence.
Leases:
A lease is an estate in land, binding on everyone (not just the person who granted the lease).
Landlord / Lessor: grantor of a lease.
Tenants / Lessees: holder of a lease.
A lease can exist as either a legal or equitable interest.
Covenants are promises whereby the landlord and tenant agree to do, or not do, certain things in relation to the land.
EG: landlord to repair the buildings.
EG: tenant to pay rent.
The proprietary rights of both the freeholder and leaseholder can be sold or transferred while the lease is in existence, creating a new landlord or tenant. Covenants will be binding on subsequent landlords and tenants.
Difference from Licences:
While licences only grant rights in personam (except estoppel licences), leases grant rights in rem. Therefore, a lease provides much stronger protection and is more valuable than a licence (due to the statutory protections afforded to lease holders).
Statutory Protections of Lease Holders:
Where it is unclear whether A has granted B a licence or a lease, A will be arguing that it was simply a licence, while B will be arguing it was a lease.
Courts look towards the substance of the agreement to determine whether there is a lease or a licence, not simply the form or label given in the contract.
In Street v Mountford, S entered into an agreement with M to give M the right to occupy 2 rooms for a ‘licence fee’ of £37/week. The agreement also contained a declaration that M understood that they didn’t have a tenancy protected under the Rent Act 1977 (right against eviction).
M moved in and had sole occupation with her husband. M sought a declaration that the weekly charge was a rent so that they were protected under statute (against eviction, challenge rent increases etc.). S contended that the agreement was merely a license.
The HL held that the agreement granted M a lease of the property, so was subject to the statutory protections. A landlord cannot simply purport, by cleaver drafting, to undermine the statutory provisions; the court will look to the substance of the agreement rather than its form / label.
3 Elements / Substance of a Lease: [11]
Consideration (usually Rent).
This is technically not necessary as term of years (a lease) means a ‘term of years … whether or not at a rent’. [12]
A landlord could grant a leasehold estate to a tenant, without them being required to pay rent or even anything at all (could be a gift).
However, leases that fall within the scope of the Rent Acts must be supported by rent to qualify for statutory protection.
Rent does not need to be in monetary form; it may be in goods, services etc.
Fixed / Determinate Term (which may be Renewable).
A lease granted for the length of someone’s life (or until marriage) in exchange for a rent or premium is converted to a 90-year term. [13] If the tenant dies before this, the lease automatically terminates.
It will be implied that a lease of an indeterminate duration with a requirement to pay periodic rent will be treated as a lease for the duration of the rent period. [14] This can continue indefinitely, with each new period creating a new lease upon payment of rent.
EG: a lease may be created / renewed each year on payment of annual rent.
A lease that is perpetually renewable is converted into a lease for 2000 years. [15] Practically, this is equivalent to freehold.
EG: a lease for 40 years, which contains a clause that the tenant has the right to renew the lease for a further 40 years at the expiry of every period, will take effect as a lease for 2000 years (providing the other conditions are met).
A lease may make it possible to end the lease early under ‘break clauses’.
A lease that is intended to start more than 21 years after the instrument that creates it is void. [16]
Exclusive Possession.
A tenant will only be a lodger (licensee only) if ‘the landlord provides … services which require …unrestricted access to … the premises’.
A tenant will have exclusive possession if they are ‘able to exercise the rights of an owner of land, which is in the real sense his land albeit temporarily and subject to certain restrictions’, and ‘can keep out strangers and keep out the landlord unless the landlord is exercising limited rights reserved to him by the tenancy agreement to enter and view and repair.’
Proof of exclusive possession is in the landlord’s ‘express reservation … of limited rights to enter and view … and to repair and maintain the premises only serves to emphasize … that the grantee is entitled to exclusive possession’. If the tenant did not have exclusive possession, the landlord would not have to reserve these rights.
The test is not whether you actually have exclusive possession, but rather that you are entitled to possession because of a property right (not the same as exclusive occupation where a party has control of land by virtue of another agreement).
In Antoniades v Villiers, A entered into separate but identical agreements with V&B to occupy a flat. V&B were partners. The agreement called them licensees, stated that the Rent Act did not apply, and that A was not granting exclusive possession. A sought to evict V&B.
The HL held that the agreements, when looked at together, created a lease and that the Rent Act applied. The fact that the agreement authorized A to use the flat was said to not deny V&B the right of exclusive possession (due to the size of the one-bedroom flat and the party’s genuine intention).
A landlord cannot deny this entitlement by inserting clauses that have no purpose beyond denying statutory protections. Their motives have to be genuine.
In Aslan v Murphy, the agreement provided that the ‘licensee’ was entitled to use the room only from 00:00 to 10:30, and 12:00 to 00:00.
The CA held that this provision was a pretense and not part of the true bargain, so the agreement was a lease and they were a tenant.
In AG Securities v Vaughan, there was an agreement for the rent of one of the bedrooms in a four-bedroom property. The agreement stipulated that the landlord reserved the right to rent out the remaining rooms.
The HL held that the landlord’s reservation was genuine, so the landlord could continue to rent out the other rooms.
Leases and Contracts – Granting a Lease from a Licence:
Leases, as estates in land, are rights in rem. It should follow that a person cannot grant a lease over land to another if they themselves do not have an estate in land (principle of nemo dat).
The law seems to have recently taken a different approach, with leases not always being of a proprietary nature. Instead, they may be contractual leases (‘Bruton leases’), which do not grant estates in the land. Thus, leases need not be proprietary in nature.
In Bruton v London HT, LHT was granted a contractual licence (not a lease) by the local authority to use the land for temporary accommodation for the homeless. B entered into a license agreement with LHT for the occupation of a flat for weekly rent. B claimed they were a tenant and that LHT had an obligation to repair the flat. [17]
The court held that, despite the fact that LHT did not hold the legal estate, the agreement did create a tenancy and that LHT was under an obligation to repair.
The HL stated that B could not obtain an actual / legal leasehold estate, but a party can contract to grant the ingredients of an estate without having the actual power to grant the estate – B had all the ingredients of a lease (exclusive possession), but not a leasehold estate itself; B has a contractual lease. The court calls this a contractual tenancy / non-estate lease.
Criticism:
‘Bruton … does great violence not only to established principles of property law, but also goes against the very purpose of Lord Templeman’s judgment in [Street v Mountford, where he distinguished leases from licenses]’.’ [18]
Term ‘lease’ construed to be more about the relationship between two parties than legal estates.
Difficulty:
While B enjoyed exclusive possession as a matter of fact (through exclusive occupation), he couldn’t have asserted this as a right against the freeholder (only against LHT).
B was not awarded a property right (nor was he looking for one). B wanted to be characterized as a tenant to take advantage of the legislation in favour of tenants, which the courts did.
Resources:
References:
[1] Thomas v Sorrell [1673] EWHC (KB) J85 [2] EG: Hurst v Picture Theatre [1915] 1 KB 1 [3] Verrall v Great Yarmouth BC [1981] QB 202 [4] King v David Allen [1916] 2 AC 54 [5] Errington v Errington [1950] 1 KB 290 [6] Errington v Errington [1950] 1 KB 290 (Denning LJ) [7] Ashburn Anstalt v Arnold [1989] Ch 1 [8] Ashburn Anstalt v Arnold [1989] Ch 1 [9] Housing Act 1988, s8 [10] Housing Act 1988, s13-14 [11] Street v Mountford [1985] AC 809 [12] Law of Property Act 1925, s205(1)(xxvii) [13] Law of Property Act 1925, s149(6); see also Berrisford v Mexfield [2011] UKSC 52 [14] Prudential Assurance v London Residuary Body [1992] 2 AC 386 [15] Law of Property Act 1922, schedule 15, s145 [16] Law of Property Act 1925, s149(3) [17] See Landlord and Tenant Act 1985, s11 [18] Dixon, Modern Land Law (12th edn) 226
Cases Mentioned:
Street v Mountford [1985] AC 809
Antoniades v Villiers [1990] 1 AC 417
Aslan v Murphy [1990] 1 WLR 766
AG Securities v Vaughan [1988] UKHL 8
Bruton v London and Quadrant Housing Trust [2000] 1 AC 406
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